High drama: Review of 2011

It would be fair to say that 2011 has been something of a saga. The ups, downs, dramas and unexpected twists have been punctuated by a marked discrepancy between the firms and individuals fairing well, and those struggling, once again, through a tough year. But just how did the drama unfold?

Hopes for a climb out of the wreckage that was 2010 have been dashed this year and once again firms have been forced to strategise for survival against the backdrop of public spending cuts, increased competition for work and a fresh European and global financial crisis.

But it hasn’t been all bad news and 2011 has been the year of winners as well as losers. For those working on high-end development, picking up work in the golden postcodes in London, there have been some success stories. Candy & Candy opened the doors to the luxurious One Hyde Park in January, reporting strong sales since and developers such as British Land and Land Securities have also turned their attentions to high-end residential schemes, even setting up in-house residential teams. Other glimmers of light have been seen overseas as firms with a strong presence in locations such as Asia and Australia have also fared comparatively well. Back on home turf and there has been the positive impact of the government’s seemingly dedicated focus on infrastructure and energy work.

Some £6.3bn additional infrastructure spend was announced by George Osborne in the autumn statement, £5bn of which will be spent on delivering capital projects. And who can forget the Olympics? With six months to go now until the London 2012 Games kick off, this mega project has acted as a lifeline to construction firms of all sizes this year as work elsewhere has fallen off a cliff.

But fall off a cliff it has and 2011 has been a tough year for many. Firms including Kinetics and Bioregional Quintain have been, or are set to be, wound up (see page 35 for more details) and stories of redundancies have been rife. The end of the year brought news of 4,500 staff being put on notice at Carillion and at Davis Langdon the number of directors dropped 25%. SMEs have been feeling the pain too - Suzannah Nichol, chief executive of the National Specialist Contractors Council said last month: “SMEs are having to focus on simply staying alive once again. It’s extremely tough.”

Here we look back at 2011, the year of the great divide as the rich got richer but the overwhelming majority got poorer …

MAIN CAST

{1} Paul Morrell - The industry’s patriarch and head of house over the last 12 months as he continues in his role as chief construction adviser. He was reappointed for another year in October.

{2} Zaha Hadid - 2011’s Stirling prize winner and general outspoken female architect of the year.

{3} Harrie Noy and Philip Youell - One of the most talked about couples in the sector, executing the deal of the year as Arcadis buys EC Harris in October.

{4} Jeremy Horner - Now one of the UK’s best known chief executives, emerging from the shadows to take on the top job at Davis Langdon.

{5} George Osborne - Apart from a lift in the autumn statement, which backed 500 infrastructure projects, the chancellor has stayed true to form this year, wielding the axe and hitting the industry where it hurts - public sector spending.

6} Nick and Christian Candy - It was all systems go for Team Candy after the launch of One Hyde Park in January and these two were rarely out of the press earlier in the year.

{7} Dan Labbad - With so many changes at one company including the dropping of the Bovis name, Lend Lease’s new head of European development became one of the most talked about contractor names of the year.

{8} Greg Clark - The minister at the heart of the row over planning reforms this year claimed that changes to the system in England were “crucial”.

{9} Grant Shapps - The Tory Party conference in October had a big focus on housing, and in the last quarter of the year Shapps has kept the media busy with housing stories. Everyone now waits with bated breath to see what impact the new housing policies and plans will have in 2012.

{10} Sir Bob Kerslake - The permanent secretary of communities and local government hit the big time in November when he was named the new head of the civil service.

{11} Sebastian James - Otherwise known as the group operations director at Dixons Retail, this was the man behind the (very) long-awaited James Review in April advocating “a system for school building which is much simpler [and] less bureaucratic”.

{12} David Higgins - A key industry player pre-2011 for his role as chief executive of the Olympic Delivery Authority. He makes the list now following his move in February to another high-profile job as boss of Network Rail.

THE FIVE BIGGEST PLOT LINES

1. The economy

This year’s much-trumpeted “return to growth” has not exactly gone to plan. As public sector spending has fallen away, the private sector has failed to sufficiently make up the difference. Throw into the mix political upheaval in the Middle East, an unprecedented number of natural disasters around the world, and - latterly - the prospect of a collapse of the eurozone and all this has contributed to negligible growth in the UK. The Office for Budget Responsibility (OBR) slashed its expectations for growth this year to 0.9% in last month’s autumn statement, from 1.7% at the time of the March Budget just nine months ago. Unhappily for anyone searching for the light at the end of the tunnel, the OBR has predicted even more sluggish growth for 2012 - just 0.7%. Some forecasters, including the highly-regarded Organisation of Economic Co-operation and Development, predict a “mild recession” for the UK in the first half of next year.

Construction’s performance for 2011 looks set to mirror that of the economy - albeit with seasonal blips. Despite an unexpected 2.6% rise in construction output in the second quarter, drops in output in the first and third quarter have put construction on course for growth of around 1% this year. Forecaster Experian expects next year to be a grim one for construction and is predicting a 3.3% decline in output.

2. Procurement

With spending in the private sector still patchy and unreliable throughout 2011, and little commitment to big investment, all eyes were on the public sector this year. Everyone knew the impact of the cuts would start to show and show they did. In May, the Cabinet Office unveiled the Construction Strategy, led by Francis Maude, to reform the way the government procures construction across all sectors to make 20% savings. Spending in all sectors from education to health has been cut back between now and 2014 and the future of PFI hangs in the balance. A National Audit Office report into the procurement of the £3.4bn M25 widening project did not paint the funding model in a positive light and this followed press reports about numbers on PFI hospitals repeatedly not adding up. Only time, and most likely 2012, will tell what the future for PFI will be - whether it will be relaunched under a different guise or whether alternatives such as the Green Investment Bank or regulatory asset base will be adopted instead.

The big announcement at the Tory party conference was David Cameron’s plan to build 200,000 new homes in the UK by expanding the party’s Right to Buy programme, and November was a big month for the future of public spending as the autumn statement promised to “get Britain building again”. Whether this can be achieved remains to be seen but chancellor George Osborne did give the construction industry something to feel more positive about as he pledged £5bn extra would be spent on capital projects. He also backed and brought forward 500 construction projects including the northern line extension to Battersea and hinted at government support for the £50bn Thames Estuary Hub airport.

3. Consolidation

Many predicted the Davis Langdon/Aecom merger in 2010 would pave the way for similar deals this year. But whether anyone anticipated such a flurry of takeovers involving such well known firms is a different question. The love affair of the year had to be the merger of EC Harris with Dutch engineer Arcadis. A union first discussed in May at Odin’s restaurant in Marylebone, the 120-year-old engineer took over the UK’s biggest QS in October to form a 19,000-strong professional services firm with offices in 28 countries, for a price thought to be in the region of £125m.

Another major deal was struck in September as US-based infrastructure and engineering giant CH2M Hill swooped in to acquire Halcrow in a £124m takeover. Halcrow, which employed 6,000 staff and CH2M Hill, with a workforce of 23,000, said it was not expecting to make redundancies because their areas of expertise and geographical focus are complementary. Halcrow’s chief executive Peter Gammie will retire when the deal goes through with Jacqueline Rast, president of CH2M Hill’s facilities and infrastructure division and company board director, due to take over the combined firms’ operations outside the US.

And after months of speculation, it was announced in July that contractor and developer Keepmoat intended to merge with smaller rival Apollo Group to create a £1bn turnover social housing business. The deal, which has been agreed in principle by both boards, was described as a merger and will see Keepmoat chief executive David Blunt lead the new group, which will be called Keepmoat.

Playing hard to get was Mouchel - after the support services grouphad rejected two offers from construction group Costain, the second worth £152m, a third bid for £175m was made, and again rejected at the end of January. Then Mouchel hit the headlines in October when chief executive Richard Cuthbert resigned with immediate effect after the discovery of a £4.3m accounting error. He was replaced by former Serco boss Grant Rumbles.

4. International

With such a tough UK market, and a faltering European economy, firms have been busily looking to pick up work further afield this year. However, the Middle East and North Africa suffered a major blow in the first quarter of the year due to political unrest, and many UK firms have not returned.

Hotspot areas have been Asia, particularly India and China, Canada, Australia and central Africa for the mining opportunities. Davis Langdon announced a number of divisional director changes back in June to position itself better to build up a presence in Australia, New Zealand and central Africa in particular. Rival Turner & Townsend has also been sticking to an ambitious expansion plan in South America, the Far East and Central Africa.

The Asian market has remained comparably healthy compared to the rest of the world with the combination of a strong economy and rapid urbanisation. UK firms, particularly consultants and architects, have been targeting this market to pick up infrastructure work and using their expertise in sustainable innovation to win favour with Asian clients. For firms without a foot in the door in these emerging markets, mergers have facilitated an entry point. Arcadis chief executive Harrie Noy said that the attraction of EC Harris was, in part, the firm’s links overseas and in Asia in particular. Make founder Ken Shuttleworth said in November: “Anyone who is not in Asia yet really should be.”

5. Sustainability

Prime minister David Cameron’s stated intention to be “the greenest government ever” has been undermined by events in 2011. The path towards new build zero carbon buildings mapped out by the last administration seems less straightforward. The first government climbdown was in the March Budget when housebuilders were relieved of the obligation to provide zero carbon power for appliances as well as heating and lighting in homes from 2016. This meant July’s proposals for allowable solutions - the mechanism enabling housebuilders to provide off-site zero carbon power to their developments - had much less impact as homes would no longer need so much green power.

Then in September the government announced it was scrapping the proposal for all commercial buildings to have a display energy certificate (DEC) by October 2012. DECs are a cheap and effective way of making end users aware of how much energy they are using and were supported by the British Property Federation and the CBI. The big shock came at the start of November when the government cut the feed-in tariff rate for small PV installations from 43p to 21p and gave customers a month to complete their installations to qualify for the old rate. This hit a burgeoning industry overnight with talk of 25,000 jobs going, a figure given some credibility by Carillion’s recent announcement that it was putting its entire energy services division of 4,500 staff on notice.

The Green Deal consultation was announced at the end of November and sets out how the scheme will work but doesn’t answer the big question: why would anyone bother? People’s homes will have to be ripped apart to install energy efficiency measures only to see the savings being used to pay off a loan attached to their property. With just £200m on the table to incentivise people it seems unlikely this initiative will create the 65,000 jobs talked about by the government.

BEST LINES

’Expense is like beauty. It’s in the eye of the beholder.’
Christian Candy

‘Men don’t listen to me, so I give them hell.’
Zaha Hadid

‘I’m worried about the huge wealth inequality between the rich and poor in London.’
Nick Candy

‘It’s demanding mixing with people until whatever time. You can’t necessarily achieve the same things if you’ve got the constraints of a good marriage around you.’ Former Sir Robert McAlpine chairman Benny Kelly

‘Do I lie awake at night worried about whether we’re going to deliver on time or on budget? - No.’
Dennis Hone, incoming chief executive of the ODA

‘As part of our masterplan we are moving the local water sources further up the hill so that leopards don’t eat the students.’
Wayne Head, director, BDP

‘I live this project 24/7. It even creeps into my dreams. I sometimes wake up with a jolt at 3am and have to jot something down or just wander around the house because I can’t sleep. This has been a huge, huge investment of the psyche.’
Larry Silverstein on the World Trade Center project

SPATS

National Trust vs the government and industry

The ongoing battle over planning reforms between the government, housebuilders and industry and the National Trust has been one of the biggest of the year. The National Trust believes the draft National Planning Policy Framework puts short-term economic gain ahead of all other considerations, notably the impact on individual communities and the preservation of the green belt. The prime minister wrote to the trust in September after its director general Dame Fiona Reynolds said she would not enter discussions with planning minister Greg Clark unless she received assurances that “the planning system is not there principally to promote economic development”. Reynolds has been criticised by the industry for attempting to “maintain the status quo, which doesn’t work.”

Westminster Academy and Michael Gove vs BDP It was revealed in July that education secretary Michael Gove and London’s Westminster Academy were suing architects BDP for £3m over alleged defects at Westminster Academy. The action was launched over claims of faulty ventilation leading to stuffy classrooms at the Stirling prize-nominated building. BDP confirmed that the proceedings were under way before hitting back against the Department for Education’s legal claim in August, arguing that faults and cost overruns were caused in part by Galliford Try and Davis Langdon.

Electrical contractors vs their workers

When eight of the industry’s main electrical contractors ditched a 40-year-old wage agreement between them and their workers, all hell broke loose. Cue three months of protests, office invasions and the largest private sector strike ballot for 10 years.

Ucatt vs Alan Ritchie

It’s fair to say construction’s largest union Ucatt has not had the best year. In April watchdogs declared its 2009 leadership election void, forcing its general secretary Alan Ritchie to resign. Undeterred, Ritchie vowed to stand for the subsequent election re-run, only to be suspended amid allegations of the misuse of union expenses. Ritchie, now at loggerheads with the union he once ran, pursued a High Court injunction to stop the election running without his name on the ballot, culminating in a bitter court battle in November - which he ultimately lost.

Architects vs Stirling prize judges

When Zaha Hadid won the Stirling prize for the second consecutive year for Evelyn Grace Academy in south London, the knives were out. Former RIBA president George Ferguson claimed it was “politically dumb” to award the prize to an expensive school at a time of austerity. But the project’s director Lars Teichmann hit back, saying the bitterness was undeserved.

West Ham United vs Tottenham Hotspurs

The spat that keeps on running involves West Ham and Tottenham over the future ownership of the Olympic Stadium. After initially being selected to run the stadium after the Games, West Ham was kicked off after a legal challenge by Tottenham threatened to get out of hand. The stadium will now be owned by the public. The latest development was an arrest amid claims Tottenham hired private investigators to snoop on West Ham and the ODA.

Hackney vs Aviva

It’s not often Lord Alan Sugar of BBC Apprentice fame gets drawn into the world of construction, but the no-nonsense celebrity was a looming presence in one of the industry’s most high profile court cases this year. Hackney Empire, the north London theatre where Lord Sugar is the main benefactor, sued insurer Aviva after an extensive refurb of the theatre went badly wrong. Despite the contractor Sunley Turriff going into administration on the job, causing delays, Aviva refused to pay up on a £1.1m bond Hackney Empire had taken out. The Empire eventually won out in the High Court.

Cliffhangers

Battersea Power Station

One of the biggest stories of the year was the announcement in November that Battersea power station is set to fall into the hands of administrators after banks demanded its owners pay back over £500m. Then, earlier this week, it crashed into administration as Ernst and Young was appointed administrator to the scheme.

Museum of Liverpool

In November, Building revealed that the newly opened National Museum of Liverpool was suffering a host of serious technical problems including dangerous and defective outdoor steps and ceiling problems linked to a collapse that injured a workman. Architect AEW was hit by a £3.5m claim after the £72m museum was found to have such major faults.

In the claim document, the museum alleged that AEW failed to design gallery suspended ceilings “adequately, or indeed, at all”, and that this was a “material cause” of the collapse of a large number of ceiling panels in May, which injured a worker.”

AEW Architects has so far declined to comment, leaving the case wide open …

Health sector reform

After a year of criticism, amendments and controversy, the NHS Health and Social Care Bill is in its final stages of consultation. Huge unanswered questions remain. These mainly centre around the future relationship between supply chain and the new health care clients. Only once the reforms go live in January and have some time to bed down will we know the real impact of the reform.

Dramatic Exits

Kinetics

Social housing and renewables contractor Kinetics went into administration in July when the firm that, by that point, employed 643 staff, ceased trading.

Holloway White Allom

After falling into administration on 11 October, housebuilder Holloway White Allom collapsed resulting in 175 job losses. Among other notable schemes, the 129-year-old firm rebuilt the Bank of England and constructed the Old Bailey and the fountains at Trafalgar Square.

Bioregional Quintain

News that the UK’s most high-profile sustainable developer, Bioregional Quintain was to be wound up hit the headlines in November. The move came as listed parent company Quintain looked to focus on the London market.

Bioregional Quintain will finish the 80-home first phase of the 750-home, low-carbon Middlehaven development in Middlesborough, and then wind up. The firm was set up in 2005 as a joint venture of BioRegional, the influential environmental charity behind the One Planet Living initiative, and listed property developer Quintain.

The Bovis brand

After 125-years the industry said goodbye to the Bovis brand as it was revealed in January that Australian parent company Lend Lease was set to drop the Bovis name.

John Spanswick

Another major change at Bovis Lend Lease was the retirement of chairman John Spanswick who retired this year after 40 years at the company. Chairman since 2005, Spanswick was previously chief executive of Bovis Lend Lease in Europe, Middle East and Africa. Other high level Bovis departures included Julian Daniel and Chris Houchin.

Also leaving the series this year:

Former Barratt boss David Pretty, Metro Design Consultants and HSE Group in July and Robinson Steel in October